EUR/USD Trades Cautiously Ahead of Expected Fed Rate Hike

The EUR/USD pair has been consolidating losses ahead of the Federal Reserve's monetary policy announcement, which is expected to bring a 25-basis-point rate hike. This would lift the federal funds target range to 3.75%-4.00%, solidifying the US Dollar's strength near two-week highs.

The latest Consumer Price Index (CPI) rose 0.4% MoM in August, while annual inflation held at 3.4%. Core CPI increased 0.3% during the month, and the Producer Price Index (PPI) also rose 0.4%, supporting the case for tighter policy.

The Fed's June dot plot showed a median year-end rate projection of 3.8%, consistent with a one-quarter-point increase in 2026. A hawkish Fed message could boost the US Dollar and push EUR/USD lower, while a surprise hold or dovish hike could weaken the Dollar.